Borrow and prosper - notes on the user cost of capital
Citation:
Frain, John. 'Borrow and prosper - notes on the user cost of capital'. - Dublin: Journal of the Statistical and Social Inquiry Society of Ireland,Vol. XXVI, Pt. II, 1989/1990, pp151-189Download Item:
Abstract:
It is often argued that many firms can do very well by borrowing. The
conclusion is based on two points which may be illustrated as follows.
Firstly suppose that the effective rate of income tax is 50%, the nominal
interest rate 8% and inflation 3%. Then the effective interest rate after
deducting tax allowances on interest paid is 4% which is equivalent to
a real interest rate of 1%. Now suppose that the nominal interest rate
increases to 12% and inflation to 7%, then tax allowances reduce the
effective interest rate to 6% and the real interest rate becomes negative.
Variations on this theme are many.
Description:
Read before the Society 31 May 1990
Author: Frain, John
Publisher:
Statistical and Social Inquiry Society of IrelandType of material:
Journal articleCollections
Series/Report no:
Journal of the Statistical and Social Inquiry Society of IrelandVol. XXVI, Pt. II, 1989/1990
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Full text availableKeywords:
Cost of capital, BorrowingISSN:
00814776Metadata
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